Thursday, June 23, 2011
Alabama and Illegal Aliens
And I say that Your Highnesses ought not to consent that any foreigner does business or sets foot here, except Christian Catholics. . . .
—Christopher Columbus, Journal of the First Voyage
Now that Alabama has passed what some describe as the harshest anti-immigration law in the country, it is interesting to see how Alabama has improved on the harsh anti-immigration ordinances passed by a small municipality.
In 2006 Hazleton Pennsylvania passed two ordinances, one with the cheerful title of the “City of Hazleton Illegal Immigration Relief Act Ordinance” (IIRAO) and the other known as the “Rental Registration Ordinance (RRO).” The RRO requires, among other things, that anyone wanting to rent a residential property in Hazleton must first obtain an occupancy permit from the city. Any owner who permits people to occupy rental units without an occupancy permit must pay $1000 for each tenant who lacks the permit plus $100 per day per tenant for each day the tenant lacks a permit. Illegal aliens cannot receive permits.
The IIRAO provides that an employer hiring an illegal immigrant will lose its business license and gives individual employees the right to sue their employer for damages if they are fired when illegal aliens are employed. In 2010 the United States Court of Appeals for the Third Circuit struck down most of the ordinances’ provisions. As a result, illegal immigrants who don’t mind living in a hostile environment continue to live and work in Hazleton. (That may soon change. On June 6 the U.S. Supreme Court granted a writ of certiorari to Hazleton that had appealed the Third Circuit’s decision. The Supreme Court remanded the case to the Third Circuit to reconsider its earlier decision in light of a case decided by the Court in Chamber of Commerce v. Whiting on May 26. By the time the Hazleton case finds its way back to the Supreme Court , Chief Justice Roberts and four of his colleagues may well give the immigrants reason to leave Hazleton.)
Although Hazleton’s approaches seemed harsh, Alabama has equaled if not exceeded them in a new law enacted in June. Known as the “Beason-Hammon Alabama Taxpayer and Citizen Protection Act”, the Alabama legislation includes a number of provisions that Hazleton forgot to include. That is hardly surprising since the Alabama law is 76 pages in length, considerably longer than the Hazleton ordinances. One of its more offensive provisions deals with education.
The Alabama statute requires K-12 schools to determine the legal status of each of its students. This can presumably be done on the first day of school by having the kindergarten teacher begin the day by cheerfully saying to the kindergarteners: “Do we have any illegal aliens with us today?” If no one raises a hand the teacher can go on to other matters. (If a hand is raised the act imposes certain Gestapo like requirements on the school that can be reviewed in Section 28 of the Act. The child may, however, continue as a student. At the college level the rule is different. The Act says an “alien who is not lawfully present in the United States shall not be permitted to enroll in or attend any public postsecondary education institution” in Alabama. That provision will insure that illegal aliens who stay in Alabama undetected will, in addition be uneducated, a condition that may not distinguish them from the legislators who passed the law, and will make it difficult for them to become productive members of society.
As in Hazleton, employers who hire illegal aliens are subject to sanctions that may be enforced by co-workers who are adversely affected by the hiring of the illegal alien. Section 17(a) of the Act says it is a “discriminatory practice for a business entity . . . to fail to hire a job applicant who is a United States citizen. . . . or discharge an employee working in Alabama who is a United States citizen. . . while retaining or hiring an employee who the business entity. . . knows, or reasonably should have known, is an unauthorized alien.” An aggrieved person who is not an “unauthorized alien” may sue and is entitled to compensatory relief. This provision offers employment security to the incompetent worker who cannot be discharged if the employer has an illegal alien on the payroll.
In what might be described as an “anti-hitchhiking” provision, the Alabama bill makes it a crime to transport illegal immigrants in vehicles. It says it is a crime to “transport. . .an alien in furtherance of the unlawful presence of the alien in the United States . . . .” Since driving the alien any distance would further the alien’s unlawful presence it would be best not to pick up hitchhikers in Alabama. On second thought it may be just as well not to visit Alabama. It is joining Hazleton and many states in trying to return to a time when intolerance was king. The U.S. Supreme Court may well turn out to be its most reliable ally.
CORRECTION: In last week’s column I incorrectly stated that Libya hired Goldman Sachs in a fiduciary capacity to invest $1.3 billion. Although that amount was given to Goldman to invest, Libya instructed Goldman what investments to make and the investments were not selected by Goldman.
Thursday, June 16, 2011
Gadhafi and Goldman
Goodness is the only investment that never fails.
—Henry David Thoreau, Higher Laws
Good news for investors whose investments have gone south comes from unlikely sources. Libya is one of them and Goldman Sachs another. The news is certain to convince many that there is no better manager of their money than that fabled institution that was saved from extinction by the taxes we pay that were given to Goldman Sachs when it was in distress. Its benevolence, when recognized by other investors, will certainly cause millions to begin investing with Goldman. Here, according to the Wall Street Journal is what happened.
In early 2008 Libya gave Goldman $1.3 billion to invest. (That was one year before Goldman received $12.9 billion of taxpayer bailout funds that it said it did not need because it was “always fully collateralized and hedged.”) It was before Gadhafi had begun publicly slaughtering his citizens and was, therefore, still considered a good friend by most western countries and by investment banks such as Goldman and other large financial institutions. Unfortunately for Libya (and Goldman as it turned out) Goldman was less successful in its management of Libya’s funds than its reputation led Libya to believe it would be. Goldman engaged in 9 equity trades and one currency transaction that led to the spectacular result that within a few months the $1.3 billion Libya had given Goldman had lost 98% of its value. By the first half of 2009 the fund was worth approximately $25 million.
Libya was distressed at its loss. According to the WSJ Libya was so disappointed that following a less than cordial meeting between the Libyan fund manager and two Goldman executives who had travelled to Libya to express the equivalent of their condolences, Goldman thought it prudent to hire armed guards to protect the executives until they could get out of town. The meeting had not, it would seem, gone well but it was not the end of Goldman’s attempts to make amends and subsequent efforts are what bode well for other Goldman investors.
Since Goldman did not want the Libyans to stay mad notwithstanding the unpleasant meeting in Libya, several proposals were made to Libya by Goldman’s chairman, Lloyd Blankfein and other executives. They hoped one of those proposals would be accepted by Libya, would smooth things over and would enable them to continue managing some of Libya’s funds. The best of the proposals, from a non-sophisticated observer’s point of view, would have given Libya a stream of payments that would, in the course of time, permit Libya to completely recoup the losses it had suffered as a result of Goldman’s management and, in due course, provide billions more. Although most disappointed investors would jump at such a proposal, for a variety of reasons no deal was ever struck between Goldman and Libya and, in all likelihood, relations between Goldman and Libya remain frosty. Of course Moammar now has other things to worry about and has probably spent little time focusing on financial investments gone sour. There is, nonetheless, a lesson in this for other investors.
Until Goldman’s efforts to placate Libya were disclosed, investors assumed that when they gave money to a financial manager which did a bad job, the investor’s recourse (absent criminal activity by the manager) was to swallow hard and select a different manager. It had not occurred to investors to suggest that the manager should make them whole, they believing that had things gone well they would not have shared their good fortune with the money manager. Goldman’s actions vis a vis Libya have set this notion on its head. Its customers should now examine their portfolios and decide if it is worth letting Goldman know of any disappointing results in performance. It would seem that if Goldman does not want Mr. Gadhafi, a singularly unsavory character, to lose money, it would be more than anxious to insure that good old upstanding American citizens who are not engaged in slaughtering their fellow citizens, not lose money because of Goldman’s poor investment strategies.
If any of my readers has investments with Goldman that have not fared well, the investor should call a Goldman representative, explain the situation and request the return of the original investment, together with an appropriate amount of interest or, alternatively, a chance to make an investment that will guarantee the kind of return offered Libya. It would, however, be advisable in making the request to be polite. The approach taken by the Libyans when meeting with Goldman representatives could well result in the investor being confronted with criminal charges and with Goldman’s unwillingness to make the investor whole. If the investor is polite, however, based on Libya’s experience I am confident the investor’s request will be favorably acted on by Goldman. It has its reputation to consider.
Thursday, June 2, 2011
Proprieties and Ponzies
It is with a pious fraud as with a bad action; it begets a calamitous necessity of going on.
— Thomas Paine, The Age of Reason
One of the questions being asked with increasing regularity is what is the polite thing to do when you have benefitted from the actions of someone running a Ponzi scheme. In one case it may be that you invested and got remarkable returns and in another it may be that you were not an investor but the recipient of the funds that the Ponzi schemer stole. Herewith two different answers to that question. But first, a word about the process itself.
Let us assume that you invested $100 with Bernie Madoff 10 years ago, and for the last 10 years have been getting a 30% return on the investment. Now you learn that in the years after you made your first investment, Mr. Madoff convinced everyone in your neighborhood to give him $100 to invest and he used that to pay you. Once that became known, of course, your neighbors were upset. The courts were also upset and appointed someone called a receiver to try to recoup for your neighbors the profits on the $100 investment you and other early investors made. Early investors were not the only beneficiaries of Ponzi schemes. Sometimes the schemer gave money he collected to charities or even politicians for political purposes.
Irving Picard is the court appointed trustee of the Madoff mess that was uncovered on December 8, 2008. To date Mr. Picard has recovered almost one half of the estimated $20 billion lost by investors. A good chunk of what Mr. Picard has collected to date comes from the widow of Jeffry M. Picower. Mr. Picower had invested with Mr. Madoff for more than 30 years. Ms. Picower agreed to return $7.2 billion to the fund. In a statement accompanying her agreement to pay she said: “On behalf of my late husband Jeffry and his estate, I am announcing today that we . . . will return every penny received from almost 35 years of investing with Bernard Madoff, an amount totaling $7.2 billion that will go to the Madoff victims’ compensation fund. Although it is my understanding that the estate’s legal liability may not have exceeded $2.4 billion, I believe that this settlement honors what Jeffry would have wanted. . . . I believe that the Madoff Ponzi scheme was deplorable and I am deeply saddened by the tragic impact it continues to have on the lives of its victims. It is my hope that this settlement will ease that suffering.” Not everyone is concerned about victims.
Ralph Janvey is a Dallas lawyer. He is the receiver for Stanford Financial Group that was run by R. Allen Stanford. In early 2009 it was learned that Mr. Stanford had stolen more than $7 billion from investors in 114 countries in a Ponzi scheme. Mr. Janvey, like Mr. Picard, is charged with trying to recover that money for the victims of the fraud. To date Mr. Janvey has recovered less than $200 million. Part of his problem is the kinds of people who benefitted from the scheme before it was uncovered. They were not all investors. Some of them were members of Congress and the Democratic and Republican National Committees to whom Mr. Stanford made contributions. They were not eager to return the funds they had received. According to the Washington Post: “At least 50 members of the House and Senate have either ignored restitution demands or donated some of Stanford’s campaign contributions to charity instead. . . .” Included among the refuseniks are Eric Cantor, the House Majority Leader, Charles Schumer, the chairman of the Senate Rules Committee, Senator Bill Nelson who chairs a Finance Committee subcommittee and Senator John Cornyn, a member of the Judiciary Committee.
Senator Cornyn explained that, when he learned of the Ponzi like character of the Sanford operation, he donated the money he’d received to charity. Senator Cornyn comes from Texas. According to one victims’ group, 1,300 Texans invested with Sanford and lost $582 million that the receiver is trying to recover. The 1300 probably feel a lot better knowing that Mr. Cornyn gave the funds that rightfully belonged to them to charity instead of to the receiver who could have distributed it back to them. Senator Nelson told the Post he had given the money he received to charity but was now preparing to write a check to the receiver. Mr. Cantor said he’d give back the money if the receiver gave him a release. It isn’t clear what he wants to be released from. The political fundraising committees are less tractable. According to the Post, “four of the principal national Republican and Democratic fundraising committees took in $1.5 million in Stanford donations that they have refused to disgorge and over which they are now fighting with the receiver.
It’s too bad the beneficiaries of the Stanford scam didn’t have among their number, people of the caliber of Ms. Picower. If there were, the receiver might have recovered more than a paltry $200 million. Indeed, it’s too bad there aren’t more people with a moral compass like that possessed by Ms. Picower living among us.